Roger Bate on the Financial Impact of Serialisation and the Deadly World of Falsified Medicines

Author and economist Roger Bate from the American Enterprise Institute, speaks exclusively to Pharma IQ at the launch of his new book "Phake: The Deadly World of Falsified and Substandard Medicines".

Pharma IQ: What is the estimated cost of counterfeit and substandard medicines in the global economy?

R Bate:
In terms of financial cost, estimates run as high as $100 billion, but my estimate is considerably lower than that, probably more like $10 billion. But that’s not to underplay the significant impact of the trade, because most of the places where the problem is greatest are in those countries where drugs aren’t that expensive anyway. So in terms of the, if you like, the body count, estimates are as high as 700,000 people. I estimate, from doing as much research as I can, that at least 100,000 people die a year. Primarily in emerging markets, the poorer countries of the world. But people in United Kingdom and United States, and the rest of Europe, die as well. So it’s at least $10 billion and probably at least 100,000 deaths.

Pharma IQ:
 Why did you feel it was so important  to focus on emerging economies in your book?

R Bate:
The first place I came across substandard and counterfeit drugs was in Southern Africa, when I was doing work on malaria and HIV programmes. I was chatting to the doctors, and they were surprised by some of the patients responding badly to the drugs. And cutting a very long story short, it emerged that some of the products were probably fake and certainly were failing quality control tests. So that sparked my interest. Also, there are problems in western countries, and I certainly don’t downplay that and I think it’s important that they’re combated better than they currently are. But when you’ve got fractions of a per cent of the supply chain in Europe and America being dangerous, whereas it’s in double digits percentages in some places. The worst that we found was in the Democratic Republic of Congo. We found that 48% of the sample of the drugs failed quality control tests. So, that’s the reason is that that’s where it’s most badly affected by this problem.

Pharma IQ: Recent changes to the EU Falsified Medicines Act mean that by 2015 most pharmaceutical companies trading in European countries will have to serialise their products, primarily using 2D data matrix barcodes. What impact do you think this will have on both the counterfeit medicines trade and also on the pharmaceutical companies themselves?

R Bate:  I think that all technologies that track good products and intercept or monitor the markets where there might be bad products are going to increase costs to counterfeiters, and those producing bad quality products as well. And hence I’m in favour of them, but I’m not a specialist in terms of the specifics of one technology versus another, or one piece of legislation versus another. So I’m not sure which techniques are necessarily going to be the best. But, as I say, whether it’s looking at simple things like holograms or whether it’s 2D barcodes or whether it’s RFID or any of these technologies. I think they’re all potentially useful. I’ll leave it to others to work out exactly which is the best.

Pharma IQ: How much financial impact do you believe these serialisation initiatives will have on the pharma industry?

R Bate: It’s uncertain. I think that one of the dangers of in-building any technology like this is that it can become a barrier to entry and is used by the largest pharmaceutical companies to restrict access of smaller companies to those markets. So I think that has to be watched, but as long as the costs are relatively low, I’m in favour of it.  

Pharma IQ:
How important do you think it is for pharmaceutical companies to talk to each other and work together, and other stakeholders in the supply chain as well?

R Bate:
That’s, I think, a very important question, because from my experience in India and China, which are the suppliers respectively of the most finished products in the world, probably, and of the most chemical ingredients, it’s extremely important that when we – and I say we, I mean western pharmaceutical interests, and that’s a broadly lit term – are sourcing from those locations, they have to be very, very careful. Because I’ve seen instances where a western company is able to say, this company is certified in Guangzhou, and we know that that’s a certified plant. And I know from the audit that I’ve seen done, and from my personal experience, that they haven’t a clue where that plant got its chemicals from. And given the production processes involved, often you can’t even test for the problems that are in that supply chain.

So you can do things like testing solubility and testing active ingredient content, and you can run these things through relatively simple tests, but if it’s been produced in unhygienic environments you might find something from an earlier production run, say of an oncology product, being found in an antibiotic, and no one is even going to be looking for it. So I think it’s exceptionally important that the supply chain becomes better integrated and, in every sense, better linked. If you think about it, you may not know the exact cow your pint of milk comes from, but you often know certainly from which country that milk has come from. At the moment, we simply can’t say this drug was made with these ingredients from these countries, and I think that has to change.

I’ve seen stuff out in the field, and I think the best companies really do know where their chemicals are coming from, but when you see the audit reports,  the most startling audit report I saw was that 39% of the chemicals evaluated by one auditor in China for European pharmaceutical companies, 39% of the ingredients were from unknown sources. So the idea that you can just trust business to sort this out I think is a little naive.

Pharma IQ: So we need to get the regulators involved?  

R Bate:
You need to have the regulators involved, but more than that, you need for businesses to pool their audits. And I think at the moment you go to some of the legitimate suppliers in China, for example, and they’ll have to supply a hundred audits every year. And it makes far more sense that they supply only three or four audits, but the auditors are able to go in much more deeply. It’s pointless a hundred different auditors going in and doing a one-day or two-day survey in a plant, because they’re never going to find out anything about, you know, potentially devious behaviour. You need someone to be there for weeks and to be able to trackback. Where do you get your chemicals from? Go to that plant. Where do you get your stuff from? If you’re in China for two days you can’t possibly do that. So that may well be mandated, but I think companies are moving towards that direction.

Rx-360, which is an industry initiative, I think is a really good idea. Because this is of common interest, whether you’re a generic manufacturer, a branded manufacturer, whether you’re based in London or Luanda, or – think of another L – Lexington, Kentucky. It doesn’t matter where you’re based, you have the similar interest, which is to make sure that the ingredients actually work properly.

Pharma IQ: You touched on China earlier. When most of Europe is unified under the Falsified Medicines Act to create a standardised serialisation system to fight back against counterfeiting, what is your opinion of China’s decision to adopt a different system using linear barcodes?

R Bate: Harmonisation of standards has always been a problem and is not unique to combating counterfeiting. I mean, I’m old enough to remember the standardisation of video recorders, and I think people said that Betamax was a better technology but VHS won out. I don’t know which is the best type of system, but at some stage there will have to be harmonisation. Or at least there will have to be an understanding of the compatibilities. And I’m not sure exactly whether it’ll end up being one monopoly system being used, or whether there’ll be a greater understanding. But we need to understand what their system is and they need to understand ours, even if we don’t adopt the same. I am not an expert on specific coding, but you certainly have to know what their codes mean if you’re going to interpret it, and right now I don’t think people probably do.

Pharma IQ:  With the range of serialisation techniques out there, from RFID to e-pedigree or even the Italian Bellini label system, what are people telling you that they feel is the most robust system at the moment?

R Bate: 
It depends who you speak to. If you speak to the investigators, they’re pretty scathing about all technologies. They say that criminals, the criminal counterfeit groups, are very smart and they’ll get round any technology. I’m a little less sceptical than that, but I’m still pretty sceptical. I think that, as I said before, if you make the cost of the counterfeiting more expensive that’s got to be beneficial. But depending on the market... and this is where I think you need a certain level of regulatory structures which are harmonised, but also you need to allow competition in the technologies to develop. 

Whether it’s using things like handheld spectrometers to identify things in the market, that’s particularly important in the poorer countries, where the capacity for serialisation authentication is very limited. In richer countries, I think what we’re seeing is typical of the business systems, where everyone thinks their idea is the best. And frankly they have to if they’re going to sell it. And that’s fine. I think we’re seeing competition. This is going to be messy for a while, but whatever product comes out I hope it’s the best and not the technology that’s just been sold the best. But I think that is always a risk.

Pharma IQ:
What are you most optimistic about in terms of anti-counterfeiting strategies for the end of 2012 going into 2013?

R Bate: I think that the most important thing that can happen over the next 12, 18 months is a greater appreciation amongst political leaders that this is a problem. Right now, the way that this is negotiated tends to take place between regulators of the Food and Drug Administration and their equivalents in Europe, MHRA in Britain and EMEA, and other countries. It’s not at a high enough level when there’s pushback. So, for example, the Indian drug industry thinks that a lot of the anti-counterfeit stuff is a barrier to entry to their generic products. They have one or two good arguments and a lot of bad ones. But at the moment, because this isn’t at the level of Cameron or Obama, we’re not moving this thing forward on a political level. And until that happens, I think you’re going to have low-level. and that’s not to decry it.

It is very important that businesses are trying to come up with new technologies,  for authentication, serialisation, etc. But until it’s seen as a much more important product by the higher-ups in the political system, I don’t think the solutions will be brought to bear. There’s competition, always. If you spend money on having an enormous security department, that’s money that you have to cover from overhead or from the sales of the drugs. So I’m positive that we are moving in the right direction, but my negatives are more that it’s a bit slow in happening.

Pharma IQ:
Many healthcare manufacturers suffer from different kinds of problems. We’ve touched on a few there. From repackaging of products to direct infiltration of the supply chain, what trends do you see increasing at the moment, and how can manufacturers defend against them?

R Bate: The techniques of the counterfeiters – and I don’t mean the producers necessarily or the packaging, but those who are infiltrating the supply chain – are pretty clever. They will find weak points to infiltrate the supply system.

I think the Avastin case from March/April this year, where fakes probably made in Syria went via Egypt into Denmark to the UK, on to the United States. From what I can see, the US, the UK and possibly the Danish traders were buying from trusted sources. So what we’re dealing with is in those instances, the drugs were going to the United States, but they went through Britain, and from what I can see the British traders did nothing wrong, but they were buying an entirely bogus product.

I think that the tightening up of the supply chains and knowing where your product’s coming from. That’s something the companies need to do, and I’m pretty sure that within the next decade they’re going to be mandated to do this. I mean, in pretty severe levels so that you know exactly where the stuff’s coming from. That would be, I think, the biggest concern at the moment, but when it comes to substandard production, if the ingredients are substandard you could follow entirely legitimate chains the entire way through, with nothing being breached, and the product still doesn’t work. So there that comes back to, as I mentioned before, the auditing of the plants where the chemicals come from. And that’s something that should be done automatically and I don’t think always is.

Pharma IQ: A supply chain is only as strong as its weakest link. What would you consider to be the weakest link, and how could it be strengthened? 

R Bate: I’m an economist and public health specialist. I’m an economist by training, and economists have a saying when they describe something as being necessary but not sufficient. And there’s no doubt at the moment that, if we had perfect international law, that is necessary but it isn’t sufficient. So what I’m about to describe is not going to deal with the problem entirely. But right now there are probably 40% of the countries in the world where making a fake drug is not a criminal offence. That’s the lowest-hanging fruit. Make it a criminal offence across the Middle East and you will find less trading of these products into Europe. I mean Egypt, Jordan to a lesser extent, Syria which is going through civil war so it’s pretty difficult to control anything there. But Turkey even has some problems with this. The free trade zones in Turkey are doing great for the economy, but a lot of fake products pass through those free trade zones. So, we need as a first step you need to really improve international public health law.

This isn’t about intellectual property, people get hung up on this and cause significant problems between health activists and some of the Indian and Brazilian manufacturers and western interests. This shouldn’t be about intellectual property at all. There should be public health law where, if you’re making an antimalarial or an antibiotic or a cancer drug and you’re making it with chalk and road paint, you should be going to jail, regardless of what you put on the label. And at the moment, there are too many countries where that isn’t a criminal offence.

That’s the first thing, and that’s one of the things in the book that I call for, an international convention against falsified, counterfeit, whatever you want to call it products. And the World Health Organization and the UN office on drugs and crime are the obvious places. And there is interest. It will take a long time. I have been working on this for a long time, and I wouldn’t be surprised if it takes a decade for this law to come about, but it’s what’s most needed.

Pharma IQ: How can we keep one step ahead of the counterfeiters?

R Bate:
 Not meaning to show my roots going to a nice private school in Britain a long time ago, but it’s like Sisyphus in hell, who used to push the rock up only to see it fall back down. Or another analogy would be like the Red Queen in Alice in Wonderland, running to stand still. This is a constant battle, and we need to keep innovating, which is why new technologies are always important.

Ultimately the counterfeiter’s only interested in what it looks like, so they have a significant cost advantage, which is why one we need to change the law, and two, we need to enforce it better. But it’s constant innovation by the manufacturers, and they do a pretty good job of that. And the technology companies, this is a great opportunity for them. But we need to keep innovating, because of the counterfeiters. In one famous example they counterfeited 13 different holograms in southeast Asia for an antimalarial. So regardless of  the company putting on new holograms they were faked. But it did tell you something, that information. It made it harder for the counterfeiters and it made it easier to prosecute them when they were eventually caught, because you could see where things were being produced. So even what might be considered a failure,  there were benefits to go after the counterfeiters. So constant innovation is required. We can’t just sit back, ever, on this.

Interview conducted by Andrea Charles.

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